How Integrated Software Vendors can Earn Revenue from Payment Processing
Written by Dana Odom, in Category Latest Tech News
Companies are always looking for ways to grow their income streams, and adding new products is a proven method of doing so. It’s even better when those products come ready to roll out to your customer base, without requiring investments of time and money for development and testing. Research shows around 51% of integrated software vendors (ISVs) serving both B2B and B2C environments have enabled direct payments as a feature of their products. It’s possible to earn revenue from payments processing in several ways, and the best option for your company depends on various factors.
Becoming an ISO
Before integrated software vendors dive into the payments processing pool, it’s important to determine whether they should form relationships with payments providers, or if they should become payments providers themselves. The latter is obviously more lucrative because there are fewer entities sharing the same revenue pot, but it also entails a lot more. Here’s what you need to know.
Reviewing the Operational Requirements
For an ISV to become a payment processing provider, you'll need to develop or acquire the competencies needed to operate the business. There’s also the customer service factor to consider, since payments processing is highly interactive and financially sophisticated. It’s essential for integrated software vendors to evaluate whether gearing up for these functions is financially viable, and if it will pay off in the long term.
Evaluating the Business Potential
For integrated software providers that support large corporations with their requirements, it may be worthwhile becoming a payments provider if you can get reassurance that your clients will make use of your new service. Smaller ISVs might not have a large enough “captive market” to tap for the service. This would mean having to market payments processing as a new product line, which would fragment an ISV’s focus. In this case, partnering with a payments provider and adding the service as a peripheral customer benefit would make far more sense.
Assessing the Costs Involved
Apart from the cost of the staffing requirements, there are registration costs required to become an ISO. Also, you will most likely have to meet minimum processing amounts, and if you don’t achieve this you could be penalized and lose money. There’s also the cost of marketing the new product line, if you don’t have a large enough client base to convert to users.
Partnering With an Existing ISO
By forming a partnership with an existing ISO, integrated software vendors can reap the benefits of payments processing without incurring the costs and operational challenges of becoming an ISO themselves. You can do this relatively easily by taking one of these five approaches, although only four actually benefit your ISV:
- Referral Model. This requires the ISV to become an agent of an ISO, which provides a merchant account to the end users. Merchants are referred to the ISO, and integrated software vendors get a percentage of revenue processed.
- PayFacs Model, in which integrated software vendors act as payment facilitators to accept and process payments for multiple smaller users.
- Shared Sales Model, where ISVs enable software to integrate with one payment processor. This model earns more revenue than others, but also requires a higher degree of involvement.
- White Label Model. Many ISOs and processing providers offer the opportunity to white-label their products. Integrated software providers can apply their own branding and processes, and become a proxy payment processor. This model gives them the most control over the relationship.
For integrated software vendors that prefer to minimize operational involvement, a payment-agnostic model allows them to interface with any provider. This enables the software to plug into any processing system, offering flexible solutions tailored to meet specific needs.